Atul Auto to launch gasoline three-wheeler in FY16

Atul Auto   expects to increase its export volume in the current year, JV Adhia, VP- Finance, Atul Auto told CNBC-TV18.

The company is aiming for a double digit growth and increase in volume in FY16, Adhia said.

It expects operating margins to increase by around 50 to 75 basis points in the current year.

The company is planning to launch a gasoline three-wheeler vehicle after the second quarter.

Below is the transcript of JV Adhia’s interview with Mangalam Maloo and Ekta Batra on CNBC-TV18.

Mangalam: Just a word on what was the export proportion on your total sales in FY15 and how much has it grown by?

A: In fact, at the moment, the product which we are having or the platform which we are catering to, do not have popularity in overseas market. It was quite insignificant during FY15. Going forward, once we will have the correct product to address that particular platform, we will definitely register good numbers in that market. Technically, it was hardly three percent during last fiscal, which was almost three times FY14.

Ekta: You did around 10 percent growth in terms of total volumes in FY15. What is your guidance for FY16?

A: Let me just tell you the H1 is likely to be a little more tricky for all the players in the industry because the sentiment are not that encouraging. But, for Atul Auto, we are quite optimistic and we expect that for the full year we will be able to maintain a double digit growth momentum.

Mangalam: And your margins also improved from 10 and a half percent to 11 and a half percent about close to that 12 percent mark. So, what is the margin outlook for FY16?

A: Since, we are scaling higher as far as volume is concerned, we will be definitely gaining better on operating leverage; that is the area where we expect that we will keep doing this upward journey somewhere between 50-75 basis points year-on-year.

Ekta: You said that first half would be sluggish in terms of volumes. When you say that, do you expect maybe flattish volumes than first half? A marginal growth or maybe a decline and what kind of numbers are you expecting in maybe a range?

A: First half is likely to remain, for Atul Auto, likely to remain with marginal growth whereas for overall year, we see that H2 will be definitely delivering better results. It is historically also true H1 has always remained a little less than the H2.

Ekta: Can you tell us what your new launches might be that you have planned?

A: We are going to launch a gasoline three-wheeler. That is very much on our cards. We have started conducting a market clinic and once we are through with that, we will be launching that gasoline three-wheeler, which will be available on all three fuels, that is petrol, CNG and LPG. At the moment, we are getting to a diesel three-wheeler platform. So, once we launch this gasoline three-wheeler, we will be catering to all four fuels available.

Mangalam: How far are we away from the launch?

A: Let us wait for one or two quarters maximum.

Aiming for 12-12.5% overall growth in FY16: Container Corp

Container Corporation  reported subdued results due to sluggishness in the domestic segment, Anil Gupta, CMD, Container Corporation to CNBC-TV18.

On the domestic front, the Railways hiked haulage charges. To make matters worse for Concor, diesel prices fell, allowing road transporters to under cut on freight rates.

The company’s net profit increased almost 19 percent to Rs 292 crore in the fourth quarter of FY15.

“Iron ore is not moving; thousands of trucks are available and they go at very cheap prices because they are not getting anything to move, ” Gupta said.

The company is more hopeful for the current year.

“We are establishing 15 multi-modal logistics parts in various parts of the country including some parts on the forthcoming dedicated freight corridor alignment,” Gupta said.

For FY16, the company’s investment target is Rs 1,200 crore. It is also aiming for a 12-12.5 percent overall growth, he said

Suzlon’s loss widens to Rs 1,212 cr in Q4

Wind turbine maker Suzlon Energy ‘s consolidated losses widened to Rs 1,212.06 crore during the March quarter due to a fall in income and provision for impairment of goodwill following sale of its German subsidiary Senvion.

The company had reported a consolidated net loss of Rs 603.45 crore in the year-ago period, Suzlon Energy said in BSE filing.

The company’s consolidated total income during the quarter stood at Rs 4,926.38 crore, a decline of 25.8 percent from the comparable period. “The company has made provision for impairment of investment in standalone financial results and impairment of goodwill in consolidated financial results (out of impairment of goodwill, Rs 2,451 crore is on account of post acquisition profits) and the same has been disclosed under exceptional items,” the company said in the filing.

“We undertook various transformational steps such as Senvion sale and equity infusion to deleverage and embark on a growth trajectory. The board has further approved Suzlon’s venture into solar space,” Suzlon Group Chairman Tulsi Tanti said in a statement.

For the year ended March 2015, the company’s consolidated net loss widened to Rs 9,157.69 crore.

For year ended March 2014, the company’s consolidated net loss was at Rs 3,519.97 crore.

The company further said its Board has given approval to embark further in the renewable sector by venturing into the solar space.

“Our results for FY15 were largely impacted by working capital challenges, which have now been addressed. Our business operations are now adequately funded with requisite working capital facilities to ramp up volumes,” said Kirti Vagadia, Head of Finance, Suzlon Group.

The company’s consolidated order book was at 1.12 GW, worth about Rs 6,886 crore.

It further said that it has completed the sale of Senvion for “l billion euro and the proceeds to be primarily utilized towards debt reduction.”

“Senvion to give Suzlon licence for off-shore technologies for the Indian market, while Suzlon to give Senvion the S111-2.1 MW license for the USA market,” the statement added.

The shares of the company today a closed 0.59 percent down at Rs 25.20 apiece on the BSE.

L&T Q4 net falls 27%, execution slowdown dents revenue

Larsen and Toubro ‘s consolidated net profit dragged 27.13 percent at Rs 2069.6 crore in January-March from Rs 2840.4 crore in corresponding quarter last fiscal. During the quarter, its net sales was slightly up 3.7 percent at Rs 28,022.6 crore from Rs 27,024.1 crore as certain sectoral constraints slowed down pace of execution.

In Q4FY15, there was an one-time gain of Rs 98.4 crore. “Profit was effected mainly due to challenges faced during execution of international projects in the hydrocarbon sector,” the company said in a statement.

On a consolidated basis, its EBITDA was down 16.3 percent at Rs 3,609 crore against Rs 4,311 crore year-on-year. Operating margin, during the quarter, stood at 12.9 percent versus 16 percent (Y-o-Y).

On a standalone basis, its net profit slipped 24.3 percent to Rs 2060.6 against Rs 2723.5 crore (Y-o-Y) while sales was down 5.5 percent at Rs 18967.9 crore versus Rs 20079.1 crore (Y-o-Y).

The order intake for the fourth quarter was also higher at Rs 47582 crore, up 39 percent (Y-o-Y). International order inflow in Q4 was at Rs 11364 crore, which constituted 24 percent of the order inflow for the quarter.

Consolidated order book of the group stood at Rs 232649 crore as at March 31, 2015, higher by 28 percent (Y-o-Y). International order book constituted 26 percent of the total order book.

“Infrastructure and services businesses recorded healthy increase in the PAT, thereby limiting annual decline in overall PAT for the year at 2.8 percent. Moreover, PAT of the previous year included a one-time write back of  Rs 664 crore on account of amortisation charge of toll road projects. Neutralising this high base effect, the PAT for the year 2014-15 shows an increase,” it said.

For the whole year, net profit was at Rs 4765 crore compared to Rs 4902 crore. Its consolidated revenue was at Rs 92762 crore the full year FY15, registering an increase of 8 percent on an annual basis. International revenue, at Rs 25926 crore constituted 28 percent of the total revenue.

The board of directors has recommended dividend of Rs 16.25 per share.

Outlook

Subdued investment climate during the year 2014-15 limited opportunities for capital goods and infrastructure sector in India. Initiatives which could potentially trigger investment interest in core sectors were time consuming. The government is expected to address the policy hurdles by accelerating decision making and by enhancing the ease of doing business.

Meanwhile the global recovery has been slow. Sharp decline in oil prices and persisting geo-political uncertainties in the Middle East Region have impacted the investment momentum. Several currencies have depreciated against the USD causing changes in the competitive landscape.

Though demand in short-term remains impacted, the reform process in India is expected to gain ground in the medium term. Faster implementation of crucial projects and de-bottlenecking of stalled projects will help revive the growth momentum. The government’s focus on infrastructure development, manufacturing of defence equipment, fast tracking power and mining sector reforms and providing thrust to Make in India programe are positive indicators for the company.

Further, progress on major reforms like land acquisition and GST should significantly improve sentiment. The company is well placed to benefit early as sustainable growth opportunities emerge over the next few years.

Nifty seen 7900-8500; like Tech Mah, Dabur, Marico: IDFC

The March quarter earnings season was a disappointment and a cyclical recovery will be seen only from the third quarter of this year, says Anish Damania Head-Institutional Equities, IDFC Securities, in an interview to CNBC-TV18.

“There are pockets of recovery, but not well spread. It will take another two or three quarters for a broad-based recovery,” he says.

He expects the Nifty to be rangebound between 7900-8500 over the next couple of quarters and says better than expected earnings growth will be key to the Nifty testing the record highs seen in March this year.

He expects the earnings growth to pick up from the third quarter onwards partly because of the low base effect.

He recommends investors to buy Tech Mahindra  shares on every weakness as the company’s earnings growth will pick up from the next quarter onwards. Among FMCG stocks, he is bullish on Dabur and Marico . He is also watching the earnings of United Spirits for signs of imporvement in the company’s financials.

He expects some pain for two-wheeler stocks near stocks, but feels that would be a good buying opportunity for long term investors.

Sonia: What have you made of the earnings seasons so far and has there been any bright spots that investors can increase their exposure into?

A: If I look at the earnings, there are couple of bright spots or maybe three bright spots. One is clearly in the oil and gas segment, we have seen some bright spots with the gross refining margins (GRMs) which is improving sharply and has led the oil marketing companies (OMCs) companies to do a little better. Second is in the pharma space where we have seen earnings upgrades coming across the board.

The third thing is in some pockets of consumers where we have started to see a little bit better than expected volume growth and the recent result declared by Jyothy Laboratories was one such instance. So, we have seen some bright spot. However, on the whole this result season has been a damp squib. It was expected that things are going to be not that great in this quarter and that is how it has turned out to be.

However, in terms of more disappointment, the PSU banks have disappointed a lot more than what the expectations were. So, that is where a lot of struggle is coming up. We have few more results coming up over the next few days but it looks like the trend is a little weaker.

Reema: What does this earning season tell you about the cyclical recovery because on one hand you have got a few industrial stocks like a Punj Lloyd and Voltas which came out with a fairly good set of earnings but on the other hand cement volumes and realisations continue to remain under pressure even in this January to March quarter? Where are we in this cyclical recovery cycle and when can we expect an uptake?

A: In the recovery phase we are seeing a scraping of the bottom for a while now and that is what is happening. I do not see a significant deterioration but I do not see a big uptake as well in the last six months. Overall I would say that a slow inflation will make its impact over the next two quarters and the cyclical recovery will probably start coming out in its earnings growth from quarter III onwards.

I would say that there are pockets of recovery which are happening but they are not well spread across the board. It will take another two quarters at least for things to happen.

Sonia: Today is a very heavy day of earning, we have a lot of largecaps like Tech Mahindra, Tata Motors, Bharat Heavy Electricals (BHEL), United Spirits coming out with numbers and also some well traded midcaps such as Dish TV and Thermax etc. Do you expect a positive surprise anywhere and any stock that you have been bullish on?

A: We are not expecting any huge positive surprises. However, I would want to watch out for United Spirits numbers because that is something where the stock trades are way rich on valuations. While not much is expected but there is always a hope that something could come about there. So, that is something where I would watch out for. Rest it is going to be more or less inline with expectations or little worse.

Reema: What are your thoughts on Tech Mahindra ahead of its earnings because its revenue growth is expected to be strong but margins could be under pressure and are anyway much lower than its peers? What is the street’s focus on Tech Mahindra going to be? Will it be on the topline or will it be on the weak margins?

A: Both the topline as well as the margins are some of the key drivers of tech stocks. If you see, there has been strong headwinds with respect to the currency movements for Tech Mahindra especially when its exposure in the Europe and UK has been on the higher side than its other counter parts. Its volume growth is expected to remain a little stronger than rest of the peers so the stock has also corrected significantly from its peak.

It is already factoring in the fact that the worst is probably there in the price. We would focus now on how it is going to do from hereon. So, maybe there will be one more quarter of mix numbers in Tech Mahindra but after that we would see the earnings traction continue. So, we would recommend investors to buy that stock.

Sonia: What is your overall view on the market itself? Is there any positive trigger that could take the Nifty out of this range of 8,350-8,450, at least by the time the first half of the year is out?

A: What we saw last year was that the first two quarters are very strong in earnings growth and were followed by huge disappointments in the third and the fourth quarter. So the third and the fourth quarter pace is particularly very low and the first two quarters therefore will show tepid numbers and that is probably what is expected.

On a lower base, even without a big cyclical recovery we are going to see a much better earnings growth coming up. So, to that extent I would say that purely by the fact that the earnings growth will look a lot better than what it has over the last four quarters. Where we go into the third quarter of this year we should start seeing the market move out of this range. Till that time the market will continue to be in this 7,900-8,500 kind of a range for a while.

Reema: Going back to our earlier highs of a little more than 9,000 on the Nifty, does it look difficult in this calendar year?

A: It is quite possible if the expectation that the earnings will grow from third quarter onwards, starts coming through. There is more likelihood that we might see Nifty gain again by the end of this year.

Sonia: You were referring to couple of consumer companies like Jyothy Laboratories that have reported strong earnings this quarter. Any thing else in the consumer space that caught your attention, that deserves higher prices purely because of good quality earnings this quarter?

A: Both Dabur and Marico in that space have done well and so has Jyothy Laboratories. Even in case of Hindustan Unilever (HUL), their earnings were little better than what most expected so there also have been some volumes surprise. Overall as we go into the next few quarters for the bigger companies because the inflation has been falling, you will start seeing the impact of the sales growth also coming down as the nominal gross domestic product (GDP) starts impacting the sales growth of these consumer companies.

Overall what we would see is that the consumer companies as such may not be that attractive in terms of growth numbers as we go forward. Given the fact that there could be limited choices to look at, consumer companies will still do okay even if the volume growth tapers off.

Reema: What are your thoughts on the two-wheeler earnings that we saw from Hero Motocorp, Baja Auto as well as TVS Motors and did they offer you any ideas to buy at current levels?

A: Two-wheelers is a very cyclical business in that sense but the cyclicality is a lot lower and a lot more shallow. What I have seen over the past 20 years of tracking this industry is the fact that two-wheelers are more resilient to a slowdown than any other auto makers. Typically what we have seen is the last six months have been very slow. If we go by history then it might stay for another six months but these are the times when you need to buy these two wheelers stocks because now the multiples have corrected and even the stocks have corrected significantly. Over the next 6 months it will be an opportunity for very long-term holders to look at these stocks.

Sonia: From a markets point of view, how would you rate the one year of the government and what more would you expect to hear and see from the government for the markets to move higher?

A: What the market wants probably is clarity on lot of issues and how things are going to forward. If you look, there are quite a few things which they have done, so they completed the coal auctions, there have been some hiccups in passage of some laws like the land bill and the goods and service tax (GST). If that gets cleared soon there will be some fillip to the market, Overall what I would say is that one year is too short to know how the government has done but incremental steps which they have taken so far are okay.

Sebi mulls system-driven disclosure regime for listed firms

Markets regulator Sebi will soon put in place a ‘system-driven disclosure regime’ for the listed companies and their top officials to help improve its real-time monitoring of insider trading cases and other corporate governance related lapses.

The move is also aimed at reducing the compliance burden on the companies and the individuals, as the new system would use technology for automatic gathering and integration of information from all available sources.

Besides, Sebi is also reviewing the disclosure requirements in the Red Herring Prospectus filed by the companies before raising funds from the market, while it has already completed a review of IPO and other application forms, as per an internal memo submitted to the regulator’s board.

Sebi said it has also observed that currently listed entities follow different standards of disclosures. In order to provide a level playing field to investors by way of timely, adequate and accurate disclosures, Sebi has proposed to review the existing regulatory framework on continuous disclosures for listed entities.

“This is expected to enable the investors to make well informed investment decisions. Apart from dissemination of information on an ongoing basis, this would also result in better price discovery and reduce the likelihood of manipulation and insider trading in the market,” Sebi said.

Besides strengthening the monitoring of listed companies including implementation of Sebi norms for Corporate Governance, the regulator is also undertaking measures to create awareness amongst listed companies for ensuring better compliance culture.

To make use of technology, the concept of system driven disclosures seeks to disclose the changes in shareholding in a listed company by automatically gathering and integrating information from available sources in a timely and accurate manner.

“It is proposed that disclosures made under different regulations may be integrated to the extent possible so as to reduce the number of times the same disclosure is required to be made by an individual or a company”.

“Such system-driven disclosures can significantly help in monitoring compliance on a real-time basis while reducing the burden of compliance on individuals,” the regulator said.

Earlier, Sebi had set up a committee for reviewing the disclosures and application form in public issues with an objective to revisit the adequacy and quality of disclosures made along with the application form (including prospectus and abridged prospectus).

The committee also looked into the review of the structure, design, format, contents and order of information from the point of ensuring that the materially important information is provided in a structured and user-friendly manner.

Nifty may slip to 7900; 25 bps RBI cut priced in: Quantum

The best case scenario for Nifty is to consolidate at 8300-8500 range, but there is a probability of it slipping to 7900 levels, says Sanjay Dutt, Director, Quantum Securities. Corporate balance sheets continue to remain under pressure and it will be the next big trigger for the market, he adds.

According to him, a 25 basis points cut by the Reserve Bank in its June 2 policy is already priced in. Dutt feels even if RBI lowers rates, the market will sell into rally.

He is sensing lack of investor interest in the market, which he adds will come back at around 7900-odd levels.

He sees the rupee depreciating from current levels, which in turn will make investors jittery.

Sonia: The last time we spoke, things were not so bright or rather the outlook was not so bright on the market but what a u-turn it has been from 8,000 level, now back at the higher end of the range. What is the sense you are getting about the rest of the series and for the month of June?

A: My views remain the same. The best case situation is that we consolidate plus-minus 100-200 points on the Nifty at the current levels but the downward bias still remains because according to me by design as far as the government and the Reserve Bank of India (RBI) policy is concerned, the currency will depreciate and as soon as we see that big tick coming in on the rupee, we will see the market getting jittery.

The only hope that lies in the near future is June 2 credit policy which might give us a bit of a bump up but that is more or less in the price; 25 bps cut in June 2 policy is more or less in the price but if there are any bigger surprises in there in the form of 50 bps cut or in the form of excess liquidity release etc then things may start to improve but we continue to be plagued with the same problems of tepid growth, balance sheets, corporate balance sheets under stress. So it is going to take few more quarters to set right those issues.

Reema: In light of all this what could be the potential downside. Would the downside be restricted to 100-200 points on the Nifty, will the market just consolidate or do you expect us to trend weaker and perhaps even dip below 8,000 level and go to 7,600?

A: The best case would be that 8,300-8,500, but the likely situation with about 60-70 percent probability is that we go down to 7,900 levels. I do not think 7,600 looks likely until and unless some factors change the entire global situation.

However, given the backdrop at this point of time whether its currency, results or other issues around us, local factors primarily, 7,900 should be a good base.

Sonia: You mentioned the RBI policy, but is that a trigger even if the RBI comes out with a rate cut, do you reckon that the market will cheer it or will it use it as an opportunity to sell into the news?

A: As I said that is the only relief that you will get to keep the market at 8,300-8,400 levels otherwise we are already sensing fatigue, sensing lack of investor interest. There was a lot of investor interest that came in around 8,000 levels when a good number of stocks were 10 percent odd lower than the current levels.

So that’s the reason 7,900-7,800 level should hold because a lot of things start getting attractive from valuation perspective. Ultimately it is going to be earnings that are going to drive the market.

Monsoon, whether plus-minus of the forecast, is not going to make that much of a difference but the key issue going to be is earnings and how things pan out in June quarter and what is the outlook in July when companies start to come out with results and what do they forecast.

The only hope in the short-term in the next two quarters lies with IT and pharmaceutical because of my thesis on rupee as well as the fact that they would be defensives for the next few months.

Over-ownership, high valuation of Indian mkt worrisome: UBS

While he is bullish on both India and China, Geoffrey Dennis of UBS, says the expensive valuations in India market are a cause of worry.

In an interview to CNBC-TV18, Dennis says the US Federal Reserve is likely to raise rates in September, but that is less of a worry than the over-ownership of Indian stocks.

Furthermore, he adds the brokerage firm only expects a 4 percent upside in emerging market (EMs) for the rest of the year as weak earnings will impact returns.

Anuj: For a lot of investors in India the key has been what is happening between India and China even now Chinese market seems to be outperforming and year-to-date it has been a major outperformer. What sense you get. Do you think this is going to continue because that has been a major factor in India?

A: We like the market, in fact we like both India and China. We have to realise that the India market has got very expensive indeed because of the strong rally that you had a particular since last May when Mr. Modi was elected as the Prime Minister. I think it was the valuation situation as well as the fact that the market is very well owned by the foreign investors. I think that is what triggered the pullback.

As far as India is concerned although the Shanghai composite, the domestic H-share market in China is driven by retail investors in China. Internationally focused market in China which is the H-share China Enterprise market in Hong Kong is nothing like its expensive, so from foreign investors’ point of view India is a richer market than China.

Sonia: What is your expectation of when the Fed rate hike would come in. The data as early as last night was quite strong from the US market with respect to the housing stats? Does that make the case stronger for rate hike to come in sooner rather than later?

A: No I do not think so. The housing sector is quite a small sector in the economy now although it is good to see some better news because the housing sector has been languishing for quite a while. Our call is still that the Fed will begin rising rate in September. We think there is a bit of a dichotomy between the economy which is growing at about 2 percent rate in the second quarter according to our US team but their concern is the labour market which is tightening, unemployment is lower and wages have begun to take up the widely watched Employment Cost index, it is now rising relatively rapidly. So it is that’s what is focusing our economists’ mind is. So we think September. It’s coming later in the year but I am not sure whether housing market data would make a lot of difference to that timing.

: We have seen a bit of FII outflows from Indian market both in the equity markets and in debt markets. As we begin the countdown to the Fed rate hike do you think it is a genuine fear that we may see more outflows and that could impact the performance of Indian markets?

A: There is a possibility there will be more outflows but our view would be that the risk of outflows are in a slightly more challenging world from a liquidity point of view when and if that develops, it is not going to be because of valuations are relatively high in India because the market is fairly well owned and it is a consensus overweight amongst investors, emerging market investors that is. That is the risk rather than being a concern over the external deficit-India does not need foreign capital to finance its deficit as its done in the past because the deficit has just appeared. Of course there are some concerns about deficit that is reappearing, now the oil price is moving higher but we are not particularly bearish about the currency. We don’t really think it is a currency issue, we just think in a more challenging environment for emerging markets and that’s what-what were to happen eventually later in the year when the Feds to move, it is more the valuation story in India that you have to worry about.

Sonia: So finally what is your own expectation of how global equities will pan out in the second-half of the year because in the last couple of weeks we had seen a bit of risk appetite wean off as risk-free bonds became more attractive. What is your own estimate for the second half of global equities?

A: Well, focusing on emerging markets which is what I focus on, we are looking for about another four percent upside over the rest of the year. Our call for the full year is 12 percent, we have already had about 8 percent, so it is going to be harder from here over the rest of the year and the argument there really is the valuations have moved up. I have said this before the real key for the emerging markets over the rest is not just when the fed may move but also what the earnings outlook will be. We need earnings growth to pull through here because valuations have got somewhat stretched though we think at the moment markets are really in a trading range now, we are looking for some more direction in terms of monetary policy from the US and from the earnings story and we had a lot of volatility recent- we has a nice sell off in bonds but we don’t expect bond yields to rise that far. We think the challenges here are when will the Fed move rates and when will the earnings growth start to resume but we are bullish, we are just not expecting big gains between now and the end of the year.

Valuations reasonable at 16 PE; like auto, banks: Deutsche

Valuations of Indian shares are reasonable at around 16 times one year forward earnings, says Akash Singhania, Head-Equity, Deutsche Asset Management India.

“We remain positive on Indian macro and expect Indian equity markets to deliver double digit returns to investors in the medium to long term,” he told Moneycontrol.com in an e-mail interview.

However, he cautions that expectations on returns need to be moderated going forward as part of it has been factored in current valuations which are now reasonable.

He expects corporate earnings growth to accelerate this year, as various profitability indicators – sales, EBITDA, net profit growth – are at 10 -year lows. He says quarterly performance could be volatile, but for the year as a whole, the number will be robust.

Further triggers for the markets include progress on reforms including the passage of GST Bill, rationalisation and simplification of tax laws, earnings growth for the March and subsequent quarters, inflation trajectory and monetary easing by the RBI, extent and distribution of monsoon, he adds.

Q: How does India look right now compared to other emerging markets?

A: Indian markets have been an attractive investment destination buoyed by improving macro and recovery in growth on an absolute basis as well as on a relative basis compared to other emerging markets. India’s macro situation has improved significantly in the last two years as the following indicators reveal:

1) There is strong political stability backed by a majority government, which facilitates passage of reforms. In the past year, we have seen multiple reforms including petrol and diesel price deregulation; increasing foreign direct investment limits in defense, insurance, railways and construction; amendment of mines and mineral auction procedures including coal block auctions.

2) GDP growth bottomed out in FY13 at 4.5 percent and since then growth has picked up and is expected to be at 7 percent levels this year. For the first time in many years, India’s growth this year could be higher than China’s growth.

3) Fiscal deficit and current account deficit has improved significantly from the levels we saw in 2013.

4) Wholesale price and consumer price inflation are at multi-year lows.

5) Interest rates have fallen by 50 basis points so far in the period January-April 2015 and there is room for further cut during the course of the year.

6) Oil prices are significantly down from the levels we saw in the period January-March 2014 and India being a net importer of oil, benefits from decline in oil prices.

Valuations of Indian markets are reasonable at around 16 times one year forward earnings which are near to long-term average of our markets. From a fund flow perspective, Indian markets have seen more than 15 billion dollar inflows from foreign institutional investors in each of the last three calendar years. We remain sanguine on domestic growth prospects and believe that India will continue to remain an attractive destination for foreign investors.

Q: What is your outlook on the market from a 6-month and 12-month horizon?

A: Backed by an improving macro, cheap valuations and continuous inflows from foreign institutional investors, market performance in 2014 was robust after many years of consolidation. Expectations on returns need to be moderated going forward as part of it has been factored in current valuations which are now reasonable. Triggers for the markets include progress on reforms including the passage of GST Bill, rationalization and simplification of tax laws, earnings growth for the March and subsequent quarters, trajectory of inflation and monetary easing by the RBI, extent and distribution of monsoon.

The risks to the Indian markets are sharp rise in oil prices and volatility in global markets based on global events like Fed rate hike or global risk aversion. Near-term volatility based on news and events is inevitable and here to stay. However, investors should focus on the longer-term return potential of the market based on its fundamentals including economic macro, growth and earnings prospects. We remain positive on Indian macro and expect Indian equity markets to deliver double digit returns to investors in the medium to long term.

Q: Do you see the RBI cutting rates in June?

A: Given benign inflation and improving macros, we believe that we may see a further cut during the course of the year, timing of which will be more data dependent.

Q: How do you see corporate earnings broadly faring in FY16?

A: We expect corporate earnings growth to accelerate. Various profitability indicators of corporate performance stand at a 10-year low. Sales growth, EBITDA growth, EBITDA margins – all are near their 10 year lows. Corporate PAT to GDP again is near 10-year lows. We expect these to pick up with recovery in economic growth. Also, corporate earnings tend to grow faster when interest rates are cut and growth recovers. Quarterly earnings could be volatile but on an annualized basis corporate earnings are likely to grow in double digits for FY16 as well as the subsequent two to three years.

Q: Which are the pockets in the market where you see value right now?

A: From a medium to long-term perspective, we see value in financials, automobiles and selective industrials. These sectors will benefit from pick-up in demand, operating leverage and lower interest costs as well as oil prices. We think consumption and pharmaceutical sectors still have longer term secular demand drivers in place and are poised to do well in the long term.

Q: What is your strategy when it comes to playing the midcap space?

A: Mid and small cap stocks have greater dispersion and volatility in returns. A few parameters which need to be thoroughly analyzed are: business model including the industry environment, entry barriers and competitive landscape and company fundamentals in terms of its business and financial strength including return ratios, leverage and cash flows. Background of the promoter, his past track record, quality and delivery of top management team and corporate governance practices play an integral role in selecting mid and small cap companies. Valuations, ownership and liquidity should also be seen before making the final selection.

Our investment strategy is based on a fundamental approach to investing with quality and growth as its key drivers, particularly bottoms-up when selecting stocks in the mid cap and small cap space. Focus has been on investing in quality companies with robust business models and consistently achieving superior risk adjusted returns with lower volatility. Over time, we believe emphasis on quality is increasing and an argument for growth at relative value (GARV) is gaining over growth at reasonable price (GARP). It’s natural that quality does not come cheap. Hence, valuations should be looked at relatively with a different perspective.  For example, valuation of a quality stock should be relative to the valuation of the sector (and not the Nifty) and also relative to the premium / discount to Nifty which it has traded empirically rather than the Nifty itself. This comparative and relative valuation differentiates long-term winners from value-traps.

Q: How much cash are you sitting on in your equity funds?

A: We have cash holdings between 0-2 percent across different equity funds, at the end of April, 2015.

Q: Do you see a likely Fed rate hike later this year as a major cause of concern for India?

A: The Fed rate hike is expected in the second half of this calendar year. The Indian economy is now better placed to withstand the effects of a Fed hike as fiscal and current account deficits have improved substantially and the rupee has stabilised. The Indian economy is witnessing higher growth compared to many other emerging market economies and is a big beneficiary of falling crude prices. This is reflected in improving current account and a stable currency. There could be short-term volatility in global emerging markets but the Indian markets should be relatively less impacted.

8000 firm base for Nifty; like banking, autos: Edelweiss

Vikas Khemani, CEO, Edelweiss Securities strongly believes market currently is in a consolidation phase but from a medium to long-term perspective, the downside for the market is protected backed by strong macro set up.

According to him long-only funds are supporting a strong base for Nifty around 8000 levels.

Market at present lacks any strong trigger and will remain in a consolidation phase until faith picks up in terms of growth prospects and earnings improvement, says Khemani in an interview to CNBC-TV18′s Sonia Shenoy and Reema Tendulkar.

According to him market is in a fair value zone and there is no deep value left, so one must look for stocks and sectors that are likely to show growth going forward. Sectors like banking and financials,where buying is happening at lower levels; funds keep increasing exposure to both private and public sector banks, and even into BFSI space. It is a sector favoured by most institutional investors, he adds.

One could also look at automobile sector because despite their poor earnings the stocks have not corrected and are consolidating nicely in a range. So as and when growth returns one will see good operating leveraging coming into these names. Cement too looks good and at corrections there is buying emerging into that space, says Khemani.

Khemani says also look at Engineering, Procurement, Construction (EPC) and capital goods space where one is seeing good buying emerging.

“By and large sectors look at sectors that are aligned to economic growth and capital investment cycle will do well and that is where buying and shopping is happening,” he adds.

According to him there are two clear trends emerging; last year most of the money that India received was from emerging market funds because they were underweight China and overweight India. However, that trade has started reversing now. However, these are the technical and liquidity adjustments which keep happening but the long-term trend from FII perspective continues to remain bullish.

There is likelihood of new trend emerging in the next 12-18 months, where India dedicated funds will get formed that will accelerate flows into India.

As far as domestic institutional investors are concerned they will always remain invested into India because they cannot go anywhere else. However, Indian retail is still under invested into equity but there has been good amount of money coming in through mutual funds, which is a good trend, says Khemani.

According to him those flows could accelerate with the market still being in an early stage of the bull market. “The earlier an investor comes into this cycle it is good for the overall health of the market,” says Khemani.